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Lots of supply and few sales: What's behind the private construction boom?

2023-03-02T16:04:59.107Z


In an 'oversupplied' market for new properties, developers believe they have reasons to keep building.


At a much faster rate than the demand shows, the Federal Capital and Greater Buenos Aires (GBA) continue to add new real estate projects.

In some areas, the density of the buildings under construction is surprising in an economic context that

does not seem very propitious

to consume that volume of sales.

However,

the price of construction remains attractive to developers, who also cite other reasons behind the boom in new construction

.

But.

Will there be enough demand in the short or medium term to absorb the number of square meters that continue to be added to the market?

Businessmen linked to the sector agree on the diagnosis:

there is a lot of stock, the level of activity in private works is very good, but the level of sales is not so good

.

Statistics show that purchase-sale operations in 2022 were 17.1% above the records of 2021, with 33,753 deeds in the City of Buenos Aires.

But they are still well below historical market levels (in 2017, there were 63,382 operations).

For Damián Tabakman, president of the Business Chamber of Urban Developers (CEDU), there are several reasons that explain the phenomenon: first,

the cost of construction "remains low in dollars,"

as well as other goods in the economy.

This encourages builders to position themselves competitively.

Currently, that value is between US$700 and US$800 per square meter, depending on the characteristics of the building.

Second, another stimulus for developers is the

few alternatives that investors have today. 

"The strong stocks that exist mean that those who have pesos trapped cannot take them abroad and many end up taking refuge in real estate assets so that those pesos do not devalue," he describes.

Another reason, according to Tabakman, is that some market segments have an attractive income, such as

temporary rental projects

, in addition to the hotel industry.

They are benefited segments precisely because the country is cheap compared to other tourist destinations in the region.

That is why there are people buying off the shelf in new projects of this type to rent them to Tourism.

The Real Estate Report analyst Germán Gómez Picasso adds other reasons that explain the oversupply that exists in the market, such as "the developers who launched in 2020-2021 due to the sharp drop at that time in banknote dollars," he says.

Another point is "the large number of houses that are being built outside the cities as a result of a slow

decentralization that began to take place in 2020

after a part of the population and companies

realized

that the teleworking”, explains the analyst.

To all this is added

“the great cushion of dollars that Argentines have

, obviously in a scenario of atypical inflation.

"Purchasing power is lost every day, which is why some choose to move them and construction was always a good place for that," adds Gomez Picasso.

According to his vision, "construction is still cheaper than the peak we had in 2017 for costs in dollars, but strong inflation beats devaluations and costs are rapidly rising in dollars," he says.

Rising costs with stagnant sales prices

According to Santiago Levrio, Institutional Director of Alianza Urbana, a civil association that brings together some 400 SME developers from CABA, "the cost of construction measured in free dollars is still at the average of the last 20 years, which indicates that it could continue going up.

However,

the drop in land value, especially in CABA, still allows new businesses to be started,”

he says.

Although he clarifies that "with the sales price stagnant and costs on the rise, it is likely that there will be

a slight decline

in activity going forward, considering that we are at high levels," he opined.

When asked if

there will be enough demand for all the units under construction to be sold,

the opinions cover a wide spectrum.

Tabakman believes that the businessmen most involved in the activity today are anticipating a kind of

“end of cycle”

.

In other words, by the end of 2023, Argentina may have less inflation, it may once again be more expensive in dollars and, therefore,

real estate prices may rise

.

Those who are aligned with this thought and also bet on the return of real estate credit "are not so worried now about not selling. They are more committed to positioning themselves competitively," he explains.

According to Levrio, buyers will not be missing.

"In fact, housing production is not able to cover demand and that is why we see

stress in the rental market

and in some segments of the sales market," he says.

"Although they seem like many buildings,

Buenos Aires is a place that has many types of demand and it is not only local

. The houses are always occupied, what interests us is the rotation of the capital so that the activity is maintained, if the prices are flexible, even a less dynamic economy can sustain a construction sector with some activity," he says.

Lots of stock, few buyers

Gustavo Weiss, president of the Argentine Chamber of Construction (CAMARCO), agrees that “

there is a lot of stock to sell for several years at this level of demand

.

Obviously, economic prospects can always change and demand can improve, but the reality is that

it is not clear if there will be more demand because investors, who largely move the market, have withdrawn

because there is no rental business today , and there is no business in buying in the well and selling the finished product because it is not sold.

With which, it is difficult to know what will happen in the future, ”he says.

According to Gomez Picasso, if you look at the publications of the properties that are sold, you see a great

"oversupply"

, but he explains that, in many cases, "they are poorly priced,

overvalued

. These are operations that are not really going to end up being carried out ", he clarifies.

And he thinks: "

What is in line with what is being sold is going to be sold. Sales are not expected to take off."

The segment that could react faster, by 2025, Tabakman estimates, is the

"premium" housing segment

, which is smaller.

On the other hand, those properties destined for the middle class, which depend on mortgage credit, would take a little longer.

NE

look too

Property sales jumped in January in the City

Is it time to invest in bricks?

Census 2022: The "Country Township" Boom and the "Urban Stain" Phenomenon

Source: clarin

All business articles on 2023-03-02

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